Ontario’s latest plan to tackle higher energy bills misses the point entirely.
Ontario’s Ministry of Energy is doing everything it can to try and tame soaring energy costs – except, of course, ending the lucrative renewable energy contracts that are the main culprit in higher electricity bills for ratepayers.
This week Energy Minister Bob Chiarelli announced that the province would be ending the unpopular Debt Retirement Charge (DRC) currently paid by all ratepayers in the province. The province estimates that getting rid of the DRC will knock about $5.60 a month off the average household electricity bill.
Yet, in the same announcement, the government says it is “working with the Ontario Energy Board” in developing another program to help the province’s low income families deal with higher energy bills. That’s because, while the government will be ending the DRC at the end of 2015, it will also be ending the Ontario Clean Energy Benefit, which offers a 10% discount on all electricity bills in the province.
The Ontario Clean Energy Benefit was put in place in 2010 to “help Ontarians with the costs of turning on more clean power” and reduces the bill for the average household by about $15 per month. When that program ends, ratepayers will be stuck with bills that are, on average, more than $9 higher – as the $5.60 gained from no longer paying the DRC each month is more than offset by the $15 increase as a result of the expiry of the Clean Energy Benefit.
Chiarelli and the Ontario government are missing the point. The market price of power on the province’s electricity market has been falling consistently in recent years – a result of weaker demand in the wake of the last recession, less industrial output and greater conservation. But consumers haven’t benefited from that drop because that falling price of power is being more than offset by the Global Adjustment, which is a charge that appears each month on their electricity bills.
The Global Adjustment is added to the basic price of power that consumers pay and is calculated by the difference between what the province has promised to pay power producers for their output and the market price of that power on the electricity market. In recent years, as the market price of power has fallen, the Global Adjustment has increased in order to make up the difference between that lower price of power and the price promised via energy contracts to power producers – many of them for renewable energy projects, including nuclear power.
The Global Adjustment used to be a negligible part of energy bills, but last year was more than twice the actual cost of electricity – accounting for about a third of a consumer’s total bill. Part of this tax goes to solar and wind producers who receive at times around 15 and 5 times, respectively, the market rate for their output – regardless of whether there is any demand for that power. The Global Adjustment ensures that consumers haven’t realized any of the benefits of a falling price of power, as they need to pay each month for the province’s decision to offer electricity producers high rates for their output.
Recent data from the Ontario Energy Board showed that the cost of electricity from renewable energy producers – or what they are promised via energy contracts signed by the province – will be $3.4 billion over the next 12 months, while the value of that power on the open electricity market is $400 million. Overall, renewable energy producers (wind, solar and bio energy) provide 10% of the total supply of electricity, yet receive 31% of the amount that ratepayers are charged in the form of the Global Adjustment.
In the end, the province’s move to offer a break on electricity bills to low income households misses the point. The actual cost of power has been falling, but the province’s decision to offer rich contracts to renewable and other energy producers has increased the total bill for consumers. The province has failed to address that issue.
Brady Yauch is an economist at Consumer Policy Institute.